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Developers beware – Court widens scope of section 37 of the Design Building Practitioners Act

Mario Rashid-Ring Benjamin Pullen ||

Summary

In its recent findings in The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659 (Pafburn) & Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC (Goodwin), the Supreme Court has expanded the scope of and provided clarity to section 37 of the Design Building Practitioners Act (DBP Act). On each occasion, the Court has found that a person who is engaged by either a building company or a developer can be held personally liable for any economic loss caused by defects in construction works carried out by their building company or employer.

Background

In Pafburn, the plaintiff was the Owners Corporation of a Strata Development of a recently developed project in North Sydney. Pafburn was the builder who was engaged by the developer Madarina Pty Limited. After the finalisation of the Construction Project, a large number of defects were identified by the Owner’s Corporation and the Owners Corporation sought to claim the costs of rectifying the defects from the builder under section 37 of the DBP Act. The factual background of Goodwin was largely similar to that of Pafburn, insofar as it also related to a construction project which was subject to a large number of defects. In Goodwin, it was the builder (who at the time the construction project was being undertaken was employed by the defendant) who was joint personally to the Proceedings.

Outcome

Section 37 of the DBP Act states that “a person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects…The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land” . Section 36 of the DBP Act defines ‘construction work’ to include “supervising, coordinating, project managing or otherwise having substantive control over the carrying out of any work”.

In both Pafburn and Goodwin, Stevenson J found that in light of the definition of construction work at section 36 of the DBP Act, a builder (in their personal capacity), a project manager (in their personal capacity) or any “authorised representative” of a building company whose role it was to “supervise, coordinate, project manage or otherwise have substantive control” over construction works can be found personally liable to the cost of rectifying defects found on construction projects in which they were involved.

Key issue

Pafburn clarifies that the duty of care owed under s 37 of the DBP Act is not narrowly confined to the employees of companies actively carrying out construction work on building sites. Rather, the duty, and thus the risk of liability, can extend to persons such as directors and supervisors simply by being in a position to control how the work is carried out. While the duty does not apply in circumstances where the owner themselves has carried out construction work on the building site, this duty will be owed to each owner and each subsequent owner of land.

Further to that, in Goodwin, Court has found that the duty of care under section 37 of the DBP Act can be extended to include project managers for building projects.  

Accordingly, both Pafburn and Goodwin confirms an expansion of the situations in which a duty of care will apply which may lead to an increase in claims brought by owners alleging defective work on building sites. Directors and/or supervisors should therefore consider the extent of the company’s insurance coverage and consider whether they too should be included to ensure that the company is sufficiently covered. Further than this, directors and builders are no longer protected from defect claims by placing the contracted company or developer into liquidation.

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